1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
----------- ------------
Commission File Number: 0-18415
-------------------------------------
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway Mt. Pleasant, MI 48858
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(517) 772-9471
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $6 par value, 790,383 as of October 31, 1997
----------------------------------------------------------
2
IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Number
Item 1 Financial Statements 3
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands) September 30 December 31
1997 1996
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks ................................. $ 10,423 $ 11,945
Federal funds sold ...................................................... 8,400 3,175
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 18,823 15,120
Investment securities:
Securities available for sale (amortized cost of
$47,732 in 1997 and $50,300 in 1996) ............................... 48,052 50,484
Securities held to maturity (Fair value --
$7,507 in 1997 and $9,509 in 1996) ................................. 7,446 9,495
-------- --------
TOTAL INVESTMENT SECURITIES 55,498 59,979
Loans:
Commercial and agricultural .......................................... 39,303 40,068
Real estate mortgage ................................................. 141,259 137,998
Installment .......................................................... 37,367 37,388
-------- --------
TOTAL LOANS 217,929 215,454
Less allowance for loan losses .......................................... 2,965 2,620
-------- --------
NET LOANS 214,964 212,834
Other assets ............................................................ 11,189 10,809
-------- --------
TOTAL ASSETS $300,474 $298,742
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing .................................................. $ 38,822 $ 41,923
NOW accounts ......................................................... 35,692 39,886
Certificates of deposit and other savings ............................ 177,583 171,836
Certificates of deposit over $100,000 ................................ 14,787 14,004
-------- --------
TOTAL DEPOSITS 266,884 267,649
Accrued interest and other liabilities .................................. 3,089 3,093
-------- --------
TOTAL LIABILITIES 269,973 270,742
Shareholders' Equity:
Common stock -- $6 par value ......................................... 4,742 4,701
4,000,000 shares authorized; outstanding--
790,321 in 1997 (783,457 in 1996)
Capital surplus ...................................................... 13,574 13,262
Retained earnings .................................................... 11,974 9,916
Unrealized gain on securities available for
sale - net of taxes of $109 in 1997 and $62 in
1996 ............................................................... 211 121
-------- --------
TOTAL SHAREHOLDERS' EQUITY 30,501 28,000
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $300,474 $298,742
======== ========
See notes to consolidated financial statements
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars in thousands)
Nine Month Period Ended September 30, 1996
-------------------------------------------------------------------------------
Unrealized
Net Gain
(Loss) on
Number of Securities Total
Shares Common Capital Retained Available Shareholders'
Outstanding Stock Surplus Earnings For Sale Equity
----------- ------ ------- -------- ---------- -----------
BALANCE AT JANUARY 1, 1996 703,248 $ 4,220 $ 10,220 $ 10,856 $ 509 $25,805
Net income 2,512 2,512
Cash dividends paid - $0.72 (565) (565)
10% stock dividend 70,243 421 2,669 (3,090)
Issuance of common stock 7,582 45 279 324
Change in unrealized loss on
securities available for sale,
net of tax benefit of $275,000 (534) (534)
------- --------- -------- -------- ------- -------
BALANCE AT SEPTEMBER 30, 1996 781,073 $ 4,686 $ 13,168 $ 9,713 $ (25) $27,542
======= ========= ======== ======== ======= =======
Nine Month Period Ended September 30, 1997
--------------------------------------------------------------------------------
Unrealized
Net Gain
on
Number of Securities Total
Shares Common Capital Retained Available Shareholders'
Outstanding Stock Surplus Earnings For Sale Equity
----------- ------ ------- -------- ----------- ------------
BALANCE AT JANUARY 1, 1997 783,457 $4,701 $13,262 $ 9,916 $ 121 $ 28,000
Net income 2,648 2,648
Cash dividends paid - $0.75 (590) (590)
Issuance of common stock 6,864 41 312 353
Change in unrealized gain on
securities available for sale,
net of $65 tax benefit 90 90
------- -------- -------- -------- ------- --------
BALANCE AT SEPTEMBER 30, 1997 790,321 $ 4,742 $ 13,574 $ 11,974 $ 211 $ 30,501
======= ======== ======== ======== ======= ========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------------------ -----------------
INTEREST INCOME
Loans.............................................................. $4,744 $ 4,522 $ 13,994 $13,001
Investment securities:
Taxable ......................................................... 662 683 2,061 2,203
Nontaxable ...................................................... 166 176 496 608
------ ------- -------- -------
TOTAL INTEREST ON INVESTMENT SECURITIES 828 859 2,557 2,811
Federal funds sold ................................................ 122 117 304 292
------ ------- -------- -------
TOTAL INTEREST INCOME 5,694 5,498 16,855 16,104
INTEREST EXPENSE ON DEPOSITS ........................................ 2,625 2,506 7,740 7,388
------ ------- -------- -------
NET INTEREST INCOME 3,069 2,992 9,115 8,716
Provision for loan losses ........................................... 134 128 386 368
------ ------- -------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,935 2,864 8,729 8,348
NONINTEREST INCOME
Trust fees ........................................................ 87 78 261 231
Service charges on deposit accounts ............................... 72 70 214 215
Other service charges and fees .................................... 233 282 665 817
Other.............................................................. 155 126 394 344
Net realized (loss) gain on securities sold ....................... (4) 0 (15) 4
------ ------- -------- -------
TOTAL NONINTEREST INCOME 543 556 1,519 1,611
NONINTEREST EXPENSES
Salaries, wages and employee benefits ............................. 1,208 1,147 3,596 3,437
Occupancy.......................................................... 162 185 477 509
Furniture and equipment............................................ 242 288 703 819
Other ............................................................. 585 612 1,750 1,729
------ ------- -------- -------
TOTAL NONINTEREST EXPENSE 2,197 2,232 6,526 6,494
INCOME BEFORE FEDERAL INCOME TAXES ........................ 1,281 1,188 3,722 3,465
Federal income taxes ................................................ 371 335 1,074 953
------ ------- -------- -------
NET INCOME $ 910 $ 853 $ 2,648 $ 2,512
====== ======= ======== =======
Net income per share ................................................ $ 1.16 $ 1.10 $ 3.37 $ 3.24
====== ======= ======== =======
Cash dividends per share ............................................ $ 0.25 $ 0.24 $ 0.75 $ 0.72
====== ======= ======== =======
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands) Nine Months Ended
September 30
1997 1996
---- ----
OPERATING ACTIVITIES
Interest and fees collected on loans
and investments........................................................... $ 16,853 $ 16,134
Other fees and income received.............................................. 1,503 1,613
Interest paid............................................................... (7,689) (7,291)
Cash paid to suppliers and employees........................................ (6,244) (5,259)
Income taxes paid........................................................... (1,167) (1,141)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,256 4,056
INVESTING ACTIVITIES
Proceeds from maturities and sales of
securities available for sale............................................. 14,499 20,563
Proceeds from maturities of
securities held to maturity............................................... 2,297 2,866
Purchase of securities available for sale................................... (11,607) (13,314)
Purchase of securities held to maturity..................................... (702) (4,136)
Net increase in loans....................................................... (2,517) (21,158)
Purchases of equipment and premises......................................... (521) (971)
-------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 1,449 (16,150)
FINANCING ACTIVITIES
Net (decrease) increase in non-interest bearing deposits.................... (3,101) 1,069
Net increase in interest bearing deposits................................... 2,336 12,995
Cash dividends.............................................................. (590) (564)
Proceeds from issuance of common stock...................................... 353 323
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,002) 13,823
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 3,703 1,729
Cash and cash equivalents at beginning of period 15,120 21,699
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,823 $ 23,428
======== ========
See notes to consolidated financial statements
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IBT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Corporation's annual report for the year ended December 31, 1996.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding were 786,210 and 776,390 for the nine month periods ending September
30, 1997 and 1996, respectively.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
SFAS No. 128 simplifies the standards for computing earnings per share (EPS) and
makes them comparable to international EPS standards. It also replaces the
presentation of primary EPS with a presentation of basic EPS. Since the
Corporation has a simple capital structure, implementation of SFAS No. 128 is
not expected to have an impact on the Corporation's reporting of EPS. SFAS No.
128 is required to be implemented for periods ending after December 15, 1997.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the major
factors that influenced IBT Bancorp's financial performance. This analysis
should be read in conjunction with the Corporation's 1996 annual report and with
the unaudited financial statements and notes thereto, as set forth on pages 3
through 7 of this report.
NINE MONTHS ENDING SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS
Net income equaled $2.65 million for the nine month period ended
September 30, 1997, compared to $2.51 million for the same period in 1996, a
5.4% increase. The increase in net income was due primarily to higher net
interest income. Return on average assets, which measures the ability of the
Corporation to profitably and efficiently employ its resources, equaled 1.18%
for the first nine months of 1997 and 1.17% in 1996. Return on average equity,
which indicates how effectively the Corporation is able to generate earnings on
shareholder invested capital, equaled 12.11% through September 30, 1997 versus
12.61% through September 30, 1996.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data) Year to Date
September 30
------------------
1997 1996
------------------
INCOME STATEMENT DATA:
Net interest income ..................... $9,115 $8,716
Provision for loan losses ............... 386 368
Net income .............................. 2,648 2,512
PER SHARE DATA:
Net income per common share ............. $ 3.37 $ 3.24
Cash dividend per common share .......... 0.75 0.72
RATIOS:
Average primary capital to average assets 10.57% 10.07
Net income to average assets ............ 1.18 1.17
Net income to average equity ............ 12.11 12.61
NET INTEREST INCOME
Net interest income equals interest income less interest expense and is the
primary source of income for IBT Bancorp. In accordance with SFAS No. 91,
"Accounting for Loan Fees," interest income includes amortization of net
deferred loan fees of $444,000 in 1997 versus $472,000 in 1996. For analytical
purposes, net interest income is adjusted to a "taxable equivalent" basis by
adding the income tax savings from interest on tax-exempt loans and securities,
thus making year-to-year comparisons more meaningful.
(continued on page 12)
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TABLE 1
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(Dollars in Thousands)
The following schedules present the daily average amount outstanding
for each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding.
Nine Months Ending
September 30, 1997 September 30, 1996
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS:
Loans $ 215,906 $ 14,064 8.69% $ 195,410 $13,076 8.92%
Taxable investment securities 42,297 1,988 6.27 47,310 2,188 6.17
Nontaxable investment securities 13,975 752 7.17 15,798 921 7.77
Federal funds sold 7,613 303 5.31 7,438 293 5.25
Other 1,433 73 6.79 344 15 5.81
--------- -------- ------ --------- ------- ------
Total Earning Assets 281,224 17,180 8.15 266,300 16,493 8.26
NONEARNING ASSETS:
Allowance for loan losses (2,827) (2,444)
Cash and due from banks 10,251 10,876
Premises and equipment 5,712 5,433
Accrued income and other assets 5,586 5,504
--------- ---------
Total Assets 299,946 $ 285,669
========= =========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits 39,376 788 2.67 $ 39,711 813 2.73
Savings deposits 70,237 1,698 3.22 68,363 1,610 3.14
Time deposits 120,299 5,254 5.82 113,027 4,965 5.86
--------- -------- ------ --------- ------- ------
Total Interest Bearing Liabilities 229,912 7,740 4.49 221,101 7,388 4.46
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY:
Demand deposits 37,656 34,888
Other 3,211 3,121
Shareholders' equity 29,167 26,559
--------- ---------
Total Liabilities and Equity $ 299,946 $ 285,669
========= =========
Net interest income (FTE) $ 9,440 $ 9,105
======== =======
Net yield on interest
earning assets (FTE) 4.48% 4.56%
====== ======
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TABLE 2
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For the purpose of this
table, changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Nine Month Period Ended September 30, 1997
Compared to
September 30, 1996
Increase (Decrease) Due to
-----------------------------------------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME:
Loans $ 1,342 $ (354) $ 988
Taxable investment securities (235) 35 (200)
Nontaxable investment securities (101) (68) (169)
Federal funds sold 7 3 10
Other investments 55 3 58
------- ------ ------
Total changes in interest income 1,068 (381) 687
Total changes in interest expense 348 4 352
------- ------ ------
Net Change in Interest Margin (FTE) $ 720 (385) $ 335
======= ====== ======
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TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
September 30
-------------------------------
1997 1996
------- -------
Summary of changes in allowance for loan losses:
Allowance for loan losses - January 1 $ 2,621 $ 2,248
Loans charged off (266) (208)
Recoveries of previously charged off loans 224 226
-------- ---------
Net loans (charged off) recovered (42) 18
Provision charged to operations 386 368
-------- ---------
Allowance for loan losses - Sepember 30 $ 2,965 $ 2,634
======== =========
Allowance for loan losses as a % of loans 1.36% 1.27%
======== =========
NONPERFORMING LOANS
(Dollars in thousands)
September 30
1997 1996
-------- --------
Total amount of loans outstanding for
the period (net of unearned interest) $217,929 $207,172
======== ========
Nonaccrual loans $ 332 $ 35
Accruing loans past due 90 days or more 649 532
Restructured loans 105 0
-------- --------
Total $ 1,086 $ 567
======== ========
Loans classified as nonperforming as
a % of outstanding loans 0.50% 0.27%
======== ========
Loans classified as substandard to
Allowance for loan losses - September 30 36.63% 21.53%
======== ========
To management's knowledge, there are no other loans which cause management to
have serious doubts as to the ability of a borrower to comply with their loan
repayment terms.
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NET INTEREST INCOME (CONTINUED)
As shown in Tables number 1 and 2, when comparing the nine month period ending
September 30, 1997 to the same period in 1996, fully taxable equivalent (FTE)
net interest income increased $335,000 or 3.7%. An increase of 5.6% in average
interest earning assets provided $1,068,000 of FTE interest income. The majority
of this increase was funded by a 4.0% increase in interest bearing deposits,
resulting in $348,000 of additional interest expense. Overall, changes in volume
resulted in $720,000 of additional FTE interest income. The average FTE interest
rate earned on assets decreased by 0.11%, decreasing FTE interest income by
$381,000 and the average rate paid on deposits increased by 0.03%, increasing
interest expense by $4,000. The increased interest rates earned and paid reduced
FTE net interest income by $335,000.
The Corporation's FTE net interest yield as a percentage of average earning
assets during the first nine months of 1997 decreased 0.08% to 4.48%. The
decrease was primarily a result of three factors: the Corporation's increasing
reliance on higher cost deposits such as certificates of deposit and money
market accounts to fund asset growth; an increase in the percentage of earning
assets invested in lower yielding mortgage loans; and lower rates earned on
other loan types due to competition.
In addition to changes in asset and liability mix, changes in rates have an
impact on the Corporation's interest income. Management expects short term
interest rates to remain steady during the remainder of 1997. Based on this
expectation, the Corporation's assets and liability repricing characteristics
and its increased use of higher cost deposits to fund asset growth, management
projects that the Corporation's FTE net interest margin as a percentage of
average assets will decrease slightly through the remainder of 1997. Due to the
many factors that can affect net interest income, interest income earned cannot
be predicted with any certainty.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Net loans outstanding represent 72% of the
Corporation's total assets and is the Corporation's single largest concentration
of risk. The allowance for loan losses is management's estimation of potential
future losses inherent in the existing loan portfolio. Factors used to evaluate
the loan portfolio, and thus to determine the current charge to expense, include
recent loan loss history, financial condition of borrowers, amount of
nonperforming loans, overall economic conditions, and other factors.
Comparing the year to date period of September 30, 1997 to the same period in
1996, average loans outstanding increased 10.5%. The provision for loan losses
was increased 4.9% to $386,000. The increase in the provision was due to the
increase in net outstanding loans. During the first nine months of 1997, net
loans charged off equaled $42,000 or 0.02% of average loans, compared to net
recoveries of $18,000 in 1996. Loans classified as nonperforming were 0.50% of
loans as of September 30, 1997 versus 0.27% for 1996. As of September 30, 1997,
the allowance for loan losses as a percentage of loans equaled 1.36%. In
management's opinion, the allowance for loan losses is adequate as of September
30, 1997.
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NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, and gains and losses from the sale of securities
available for sale. The income earned from these sources decreased $92,000 for
the nine month period ending September 30, 1997, compared to the same period in
1996. Significant changes were a $216,000 decrease in ATM fees, a $31,000
increase in brokerage commissions, a $30,000 decrease in trust fees, a $29,000
increase in overdraft fees, a $22,000 increase in gains on the sale of
residential real estate mortgages, and a $19,000 decrease in the gains and
losses on the sale of securities available for sale.
The Corporation has established a policy that all 15 and 30 year amortized fixed
rate mortgage loans will be sold. These loans are accounted for according to
SFAS 125, and are sold without recourse. The Corporation retains the servicing
of these loans. The calculation of gains on the sale of mortgages exclude at
least 25 basis points for the servicing of these loans. Included in other
operating income is a $104,000 gain from the sale of $12.1 million in mortgages
during the first nine months of 1997 versus a $70,000 gain from the sale of $9.7
million in 1996.
NONINTEREST EXPENSE
Noninterest expense increased $32,000 or 0.5% during the first nine months of
1997 when compared to 1996. The largest component of noninterest expense is
salaries and employee benefits, which increased $159,000 or 4.6%. The majority
of this increase is related to an increase in staff and normal merit and
promotional salary increases. Occupancy and furniture and equipment expenses
decreased $148,000. The decrease in these expenses is associated with automatic
teller machine operating costs, computer operations, and building and equipment
depreciation. Other noninterest expenses increased $21,000. The most significant
changes were increases in postage, FDIC insurance premiums, other losses, and
loan documentation expenses.
QUARTER ENDED SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS
Net income equaled $910,000 for the third quarter in 1997 compared to $853,000
for the same period in 1996, a 6.7% increase. The increase in net income was due
primarily to higher net interest income. Return on average assets equaled 1.21%
for the third quarter in 1997 compared to 1.17% for the same period in 1996.
Return on average equity equaled 12.13% for the third quarter in 1997, versus
12.48% for the third quarter in 1996.
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SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Quarter Ended
September 30
------------------------------
1997 1996
------------------------------
INCOME STATEMENT DATA:
Net interest income $ 3,069 $ 2,992
Provision for loan losses 134 128
Net income 910 853
PER SHARE DATA:
Net income per common share $ 1.16 $ 1.10
Cash dividend per common share 0.25 0.24
RATIOS:
Net income to average assets 1.21% 1.17%
Net income to average equity 12.13 12.48
NET INTEREST INCOME
When comparing net interest income for the third quarter of 1997 to the same
period in 1996, a 3.9% increase in average interest-earning assets provided
$248,000 of additional FTE interest income. The average rate of interest-earning
assets decreased 0.04%, resulting in a $60,000 decrease in FTE interest income.
The changes in average balances and rates of earning assets provided an
additional $188,000 of FTE interest income. The growth of earning assets was
funded primarily by growth in interest-bearing deposits, which increased by 2.5%
in 1997. The average cost of these deposits decreased by 0.10%. The changes in
the average balances and rate paid on interest-bearing deposits resulted in
$119,000 of additional interest expense. Overall, the changes in interest rate
earned and paid and average balances resulted in additional net interest income
of $69,000 in the third quarter of 1997 when compared to the same period in
1996.
PROVISION FOR LOAN LOSSES
Comparing the quarter ended September 30, 1997 and 1996, average total loans
outstanding increased 6.4%. The allowance for loan losses as a percentage of
total outstanding loans was 1.36% as of September 30, 1997 and 1.27% in 1996.
During the third quarter of 1997, the Corporation had net charge offs of
$53,000. The amount provided for loan losses in the third quarter of 1997 was
$134,000 versus $128,000 in 1996. The increase in the provision was due to the
increase in outstanding loans.
NONINTEREST INCOME
Noninterest income earned in the third quarter of 1997 compared to the same
period in 1996, decreased $13,000. The most significant changes were an $81,000
decrease in ATM fees, a $21,000 increase in gains on the sale of mortgage loans,
a $16,000 increase in overdraft fees, a $9,000 increase in trust fees, and a
$9,000 increase on income earned from the sale of credit life insurance.
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TABLE 4
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(Dollars in Thousands)
The following schedules present the daily average amount outstanding for
each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding.
Quarter Ending
September 30, 1997 September 30, 1996
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- -------- ---------- -------
INTEREST EARNING ASSETS:
Loans $ 216,967 $ 4,766 8.79% $ 203,887 $ 4,547 8.92%
Taxable investment securities 40,376 638 6.32 43,786 678 6.19
Nontaxable investment securities 13,874 252 7.27 14,085 266 7.55
Federal funds sold 8,844 121 5.47 8,911 117 5.25
Other 1,466 24 6.55 361 5 5.54
--------- -------- ---- -------- ------- ----
Total Earning Assets 281,527 5,801 8.24 271,030 5,613 8.28
NONEARNING ASSETS:
Allowance for loan losses (2,912) (2,552)
Cash and due from banks 10,510 11,785
Premises and equipment 5,669 5,578
Accrued income and other assets 5,732 5,207
--------- --------
Total Assets $ 300,526 $291,048
========= ========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits $ 38,112 254 2.67 $ 38,310 258 2.69
Savings deposits 68,415 554 3.24 68,641 545 3.18
Time deposits 122,390 1,817 5.94 116,479 1,703 5.85
--------- -------- ---- -------- ------- ----
Total Interest Bearing Liabilities 228,917 2,625 4.59 223,430 2,506 4.49
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY:
Demand deposits 38,500 37,114
Other 3,097 3,173
Shareholders' equity 30,012 27,331
--------- --------
Total Liabilities and Equity $ 300,526 $291,048
========= ========
Net interest income (FTE) $ 3,176 $ 3,107
======== =======
Net yield on interest earning assets (FTE) 4.51% 4.59%
==== ====
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TABLE 5
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on interest
income and expense for the periods indicated. For the purpose of this table,
changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent
(FTE) rate multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Quarter Ended September 30, 1997
Compared to
September 30, 1996
Increase (Decrease) Due to
----------------------------------
Volume Rate Net
CHANGES IN INTEREST INCOME:
Loans $288 $(69) $219
Taxable investment securities (54) 14 (40)
Nontaxable investment securities (3) (11) (14)
Federal funds sold (1) 5 4
Other Investments 18 1 19
---- ---- ----
Total changes in interest income 248 (60) 188
Total changes in interest expense 84 35 119
---- ---- ----
Net Change in Interest Margin (FTE) $164 $ 95 $ 69
==== ==== ====
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NONINTEREST EXPENSE
Noninterest expense decreased $35,000 for the third quarter of 1997 when
compared to the same period in 1996. Noninterest expense includes salary and ,
occupancy, and other operating expenses. Salaries and employee benefits
increased $61,000 due to normal merit and promotional salary increases.
Occupancy and equipment expense decreased $69,000. The majority of this decrease
is related to the operating expenses associated with automatic teller machines.
Other operating expenses decreased $27,000. The most significant changes were
decreases in printing and office supplies, correspondent bank charges, audit
fees, consultant fees, and an increase in FDIC deposit insurance premiums and
legal fees.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1996, total assets increased $1.7 million to $300.5 million.
During this period the loan porftolio increased $2.5 million, fed funds sold
increased $5.2 million, and investment securities decreased $4.5 million.
Changes in funding sources include a $3.1 decrease in noninterest bearing
deposits, an increase in interest bearing deposits of $23 million and a $2.5
million increase in shareholders' equity.
LIQUIDITY
Liquidity management is designed to have adequate resources available to meet
depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and the payment
of cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and investment securities available for sale.
As of September 30, 1997, cash and cash equivalents as a percentage of total
assets equaled 6.3%, versus 5.1% as of December 31, 1996. During the first nine
months of 1997, $3.3 million in net cash was provided from operations, and $1.4
million was provided by financing activities. Financing activities used $1.0
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $3.7 million increase in cash and cash equivalents
during the first nine months of 1997.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale equaled
$48.1 million as of September 30, 1997 and $50.5 million as of December 31,
1996. The Corporation's liquidity is considered adequate by the management of
the Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and unrealized gains or (losses) on securities available for
sale; and increased approximately $2.5 million since December 31, 1996. As of
September 30, 1997, the Corporation's capital included $211,000 of unrealized
gain on securities available for sale.
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CAPITAL (CONTINUED)
There are significant capital regulatory constraints placed on the Corporation's
capital. The Federal Reserve Board's current recommended minimum tier 1 and tier
2 capital to average assets requirement is 6.0%. The Corporation's tier 1 and
tier 2 capital to average assets, which consists of shareholders' equity plus
the allowance for loan losses, was 11.0% at September 30, 1997.
The Federal Reserve Board has established a minimum risk based capital standard.
Under this standard, a framework has been established that assigns risk weights
to each category of on- and off-balance sheet items to arrive at risk adjusted
total assets. Regulatory capital is divided by the risk adjusted assets with the
resulting ratio compared to the minimum standard to determine whether a bank has
adequate capital. The minimum standard is 8%, of which at least 4% must consist
of equity capital net of goodwill. The following table sets forth the
percentages required under the Risk Based Capital guidelines and the
Corporation's ratios as of September 30, 1997:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS:
IBT Bancorp
Actual
Required 09/30/97
------------ ------------
Equity Capital 4.00 15.79
Secondary Capital* 4.00 1.25
Total Capital 8.00 17.04
* IBT Bancorp's secondary capital consists solely of the allowance for
loan losses. The percentage for the secondary capital under the
required column is the maximum allowed from all sources.
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PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed or required to be filed
during the quarter ended September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBT Bancorp, Inc.
--------------------------------------------
Date: November 7, 1997 /s/ David W. Hole
-------------------- --------------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
--------------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
27 FINANCIAL DATA SCHEDULE